Property: Buy Now or Wait?

Three frequently asked questions when it's time to buy property:

1) To buy or just rent?

2) Buy now or wait?

3) Buy landed or high-rise?

These are the questions that I've been asking myself before. Starting with renting myself, I just need to pay RM500 divided by two with my friend, and the rest of my money can be spent on paying the bills, buying stuff, travelling, etc. But then, the house would not be my asset which builds equity, and if my housemate decided to move out I need to find other tenant and I can't decorate it much. Considering that I'm going to be in Putrajaya until I retire, and I wanna enjoy better living with better facilities that comes with the property, I proceed to buy property here. Of course you wanna live where you can enjoy your life most right?

The next question would be, should I buy now or wait? Well, as the old adage goes, time waits for no man. The longer I wait, the higher the cost would be, the smaller options there would be, so I choose to buy now. This is especially true in Putrajaya, the property price here are skyrocketing by year and doesn't seems to stop anytime sooner. And the prime areas are getting smaller every year so I need to grab whatever chances there are.

And lastly, whether to buy landed or high-rise? Since my budget is only around RM400k, and I choose Putrajaya as the place to live since I want to be as close as possible to my workplace, and there's almost no option for landed around that price range, I decided to go for high-rise property. Besides, with high-rise property, I get to enjoy the aforementioned modern facilities i.e. swimming pool, gym, clubhouse etc.

And when it comes to choosing a property, these are some of the things to be considered: established property developer, strategic location, amenities, accessibility, facilities, potential future growth, etc. For me, as long as the size of the unit is spacious enough for me to live in, attached with reasonable price that I can afford, must-have my own bathroom in master bedroom, must at least have balcony, it would be good enough for me. And location is the most important thing above all.

Some friends recommended that I wait for either PR1MA or PPA1M or the LHPS housing application in Putrajaya area. At least it's half price compared to my current target, though the facilities, neighbourhood, are other things to think about. What you guys think?

Buy property now or buy later, which is riskier?by Charles Tan, March 4, 2015This article was first published in Property Insight magazine February 2015 issue.

When I bought my first property 12 years ago, it was the toughest, both financially and mentally. Financially because both my wife and I have only worked for 5 years and our savings are not high plus both of us have never read a lot about properties before and thus have never prepared for it financially. Mentally stressed too because we felt buying a property is very risky. What if we lose our jobs? What if the apartment that we bought loses its value? There were many unanswered questions. Majority of the friends our age then do not own a property. Frankly, buying early or buying later, which is riskier? How about if we rent? Would there be less risk? What can we do to manage some of these risks? Let’s explore a few today.

Save more before we buy. True?
The truth is, our salaries are growing slower than property prices. Since majority of us are working people, there is no way that our salaries would rise faster than the rise in property prices. The reason is because whatever the quantum of increase that may happen, it will be based on the base. We may have a 10% increment but this number is likely to be smaller than a 5% increase in price of the condo that we intend to buy. That’s because the 10% based on a RM5,000 salary can give us an additional RM6,000 per year. The condo that we are aiming might be RM600,000 but 5% meant it has increased in price by a whopping RM30,000. The solution is to buy one when we can afford it. Ifwe could not afford a RM600,000 unit, how about RM400,000? If not RM400,000, what about RM200,000? Never stretch our financial limit too thin, that is the highest risk of all! We may lose everything. A good property is a hedge against future price increase and of course once we have bought, the price increase is now an advantage to us. Time awaits no men is applicable in many situations including the purchase of our first home.

Property bubble is bursting soon.
First do we believe a bubble is bursting soon? If we believe in one, the next question would be, when is ‘soon’? 6 months? 12 months? 18 months? What’s our strategy today and after the bubble bursts? If we believe, then have we saved as much money as we can for the past many months? Did we refrain from any unnecessary spending? If we have saved none but continue to cry ‘bubble bursting soon,’ it is not a risk but it is a huge loss of opportunity if the bubble really did burst as per our expectation. When we always miss all these great opportunities, in the long run it becomes a huge risk.

To those who believe that they must wait until the bubble bursts before buying, think really carefully, if we did not dare to buy before the bubble burst, would we suddenly be so brave to buy when everyone we know tell us not to buy during bad times?

The younger generation can no longer afford anyway. Better just rent.
Renting forever is never a risk. However, renting for 10 years and suddenly we feel like it’s time to buy our first property, that is a risk. Can we afford one at that time? Do note that the difference between paying rental and paying for a mortgage may be very little. Major difference would just be the first 10% before we get a loan for the remaining. In other words, the rental money could have been your mortgage payment. Assuming the property price rises only 5% per year, after 10 years, that is a compounded 63%. A RM500,000 home today would be RM815,000 by then. That’s not too bad right? The only issue is, the house prices for the locations we like has been rising faster than 5% while areas which have hardly moved, it may not be something that we like. The younger we are, the better it is to buy because we can stretch the repayment period longer and when we are more capable, we can choose to shorten or pay faster LATER. Do not kill ourselves right from the beginning.

Understand the risks when we are not using our wealth to continue creating new wealth. My friend told me proudly that she aims to finish paying for her RM700,000 property within 10 years. She wants to be debt-free. A good goal but to be honest, there is very little difference in having RM700,000 and doing nothing with it versus finished paying for our first home and staying in it. In both cases, the RM700,000 is not doing anything. Yes, the house price is increasing but we could not do anything with it unless we do a refinance. If we want to do a refinance, then why pay so much in the first place? If we do have some money, use it to create wealth. Please remember that overstretching financially is far more riskier than paying off the home loan early and doing nothing with it.

The rich are becoming richer. We, the middle class are becoming poorer.
Take out our smartphones, google for ‘income disparity’. Look at all the countries shown. Except for countries we have never heard of, income disparity is happening in every country in the world today. Even in our neighbor down south. Rich people are becoming richer because of how they manage their wealth creation process. The middle class thinks they are poor and believe there’s nothing that can be done. Without any doubt, this would become true after a while. One reason for some of these richer ones is because they create more wealth with the wealth they have. Most of the time, it includes property investment. Question is, do we want to think like the rich people or the middle class. The choice is actually for us to make.

If we think that we should now rush out and buy a property, that is a big risk. The reason why we should buy a property when we can afford one is so that we do not need to struggle even harder a few years down the road when our savings are even lower versus the property prices. The reason why we should not think of property as a ‘sure rich’ formula is because it is not. If there are ‘sure rich’ formulas, why are majority still in the middle class?

Personally, how many friends have told us about their failed property investments? I have quite a number. One told me that he bought a huge semi-detached in a very new area. He thought staying there would be awesome. When it was completed, he did not like the location enough and today, he could not sell that property and yet he has to pay for another one for which he is staying today. Think clearly, if we do not like the location, never believe someone would like that location. Majority of us actually think alike. That’s why middle class is the largest pool in all countries including developed ones.

In conclusion, did we invest in ourselves? For those who are reading this now, I think you are on the right track because you are reading a property magazine. Sufficient knowledge allows us to make a better decision. It does not mean there are zero risks. However, with the right mindset and a good understanding about ourselves and the property market, we are able to manage the risks much better. Under normal circumstances, it may be better to buy earlier than later. However, this highest risk of all? It is to pretend like nothing is going to happen and do nothing. Happy investing or waiting for the right opportunity.

Many are still buying. Even more are waiting by the side. Real estate agents are complaining that servicing a buying customer needs lots of patience these days. Even my lawyer friend said that the number of transactions have really slowed down for 2014 compared to previous years. She was still very busy but I think she wanted to say that she can be busier if need be.

Yes, we are talking about the property market of Malaysia. On one hand, there are groups urging the government to help them buy their first property which the government is trying through various incentives such as PR1MA. However, in certain hotspots in KL / Selangor, the prices are very strong and there’s no sign of it declining even with the current slowdown.

Of course for the newer property markets like Iskandar, it has shown a downtrend but my personal thinking is that if Singapore’s property market is on a downtrend, it’s hard for Iskandar to maintain its uptrend momentum. On a country basis, Singapore is still the largest investor within Iskandar today. Thus, it is not entirely due to just the demand and supply equation which is never applicable for newer areas. For new areas, it’s all about expectations. If the expectations are met, the prices and the demand go up as well as the other way around. The beginning was indeed tough for Iskandar and then it got easier and suddenly it got hotter with the entry of the China based developers and these days, it has the ‘oversupply’ cloud hanging above it.

Are gloomier days coming? Most of the time, economic growth underpins the property market. Good growth means more income and this translates into higher property transactions. Well, Malaysian economy will still be growing but according to one latest analysis, this growth is on a downtrend.

Projection by UBS Investment Bank Senior ASEAN and India economist Edward Teather is that the causes include a slowing domestic and investment growth due to the current fiscal restraint, prudent monetary policy and a maturing credit cycle. For 2014, Malaysia would grow by 5.5 percent, dropping to just 5 percent in 2015 and a further drop to 4.7% in 2016. Not everything is negative though. Fortunately, the fiscal deficit is expected to decline to just 3.5% of GDP in 2014 and by 2016, dropping to just 2.7%. This means that the route towards a balanced budget is on track. Consumer Price Index would however grow to 4.2 per cent before dropping back to 2.5% in mid 2016. In fact the policy rates are expected to be maintained from now till 2016. With the current volatile economic environment, I think UBS may be right. Bank Negara may have to continue the current accommodative stance until the growth is quite certain.

Booming is not likely but I think consolidation has started. I hope you noticed the last few sentences above? Actually, the overall prediction by UBS points to a CONTINUOUS economic growth. For the property market to start moving again and the prices to be moderate instead of going down, the economic growth must be continuous. The economy must be resilient enough and the central bank must continue to play a very prominent role, especially as Malaysia is a small country. Any bad news around the world would affect us easily. I seriously think the days of sudden property price growth of the past few years have stopped and I hope it will be maintained from now onwards. It has always been said that comparatively, Malaysian property prices are cheap versus neighbouring countries and I do agree but within our own country, I have not seen sufficient evidence that our overall incomes are growing in tandem. In other words, should the prices be growing indiscriminately due to a minority of greedy speculators, we are looking at a bursting property bubble soon.

Affordability is on a severe loading test today. Fortunately, these days, many huge developer names are saying that their focus is now on affordability. Remember the days when high-rise projects with over 500 units were considered high density? Today, projects with over one thousand units are not considered that abnormal anymore. With the huge number of units being offered, prices should moderate moving forward and the rises should be capped.

Since the Malaysian property market is now focusing on affordability instead of luxury or for the greedy, would it be safe then? This depends on what would the effects be when the ‘Doom’ predictions come true from outside of Malaysia.

IMD Business School’s Professor, Arturo Bris has predicted a crisis by April 2015. He gave many reasons for his predictions. The Jerome Levy Forecasting Center said that its half dozen analysts have attached a 65% possibility of a worldwide recession by end of 2015. David Cameron, Prime Minister of the 6th largest economy in the world tells the world that the next crisis will be coming soon. The ‘soon’ would be 2015. Meanwhile, using the stock market as a benchmark, Jeremy Grantham, chief investment strategist at Boston-based money-management firm GMO said that the stock bubble will burst when the S&P 500-stock index reaches 2250. Please google for the latest number. As of 15 December, it’s only slightly above 2,000 points. This means that the bubble is safe unless the index rises another 10% or more. All these predictions are from prominent personalities who have access to far more data than many of us would. Thus, their research and analysis would definitely carry much more weight than the majority of what your friend is saying.
Does it mean that ‘doom’ is indeed the flavour of the day in 2015?

Tell me, if all these predictions were to come true, what would happen to the property market? I cannot answer what you should do but this is what I am doing.

Fixed deposits? I did not increase my fixed deposits. I think I have enough there already. Please do note that it is a must to have sufficient fixed deposits to last you 6 – 12 months.

Properties? For 2014, I have decided that unless the new property is way too attractively priced, I would only be buying secondary properties and the focus is on easy to rent out type of properties. At least even if rentals fall, I should still be able to afford the mortgage for some time. I have also sold two of my properties which have given me gains and both have passed the RPGT periods. I am not a speculator as you can see.

Stock market? I have bought more units of a few defensive stocks. No idea if these would be affected but I prefer to be cautiously optimistic.

Unit Trusts? No changes. I am still buying on a monthly basis. Bad times do not last forever and it is what you do during bad times that will determine if your good times are coming after the bad times. Whether it’s gloom, boom or doom, make the best of it. The worst action one can ever do would be, ‘oh dear, the bad times are coming, I think I’d better not do anything now’. Happy preparing!